Christmas is a time for family, food and – of course – presents. But rumour has it that the best presents only go to the “nice” kids, with “naughty” ones finding nothing more than a lump of coal under the Christmas tree. Fortunately for them, Frontier is at hand. Our stock-in(g)-trade is applying economics – sometimes in unusual ways – to help clients put forward their best case to stakeholders and policymakers. So this year, we thought we’d try to help your children turn their regulatory regime from threat to opportunity. Leave this bulletin on the kitchen table at your peril.
“He’s making a list, Checking it twice; Gonna find out who’s naughty or nice…” The tune may be jolly, but the message is much less jovial: only kids who meet a certain – unspecified – level of “niceness” can expect to get Christmas presents. Bad behaviour will receive a frosty reception in winter wonderland. Be good or Yule be sorry.
Will parents do as they say? Or can you work on the premise that it’s all a big bluff?
Santa, Scrooge and the Grinch – it sounds as if they’re all in it together, running a regulatory regime with high performance hurdles for Christmas present pay-outs. But will parents do as they say? Or can you work on the premise that it’s all a big bluff? After all, no self-respecting child wants to munch greens or do the washing-up unnecessarily.
Until recently, the answers to these questions were as shrouded in mystery as the location of Santa’s toy factory. But a recent survey – carried out for Walmart by market research firm GfK – has finally thrown up the data that enables Frontier to bring rigour to the debate¹. This survey, in which over a thousand children and parents were quizzed on a wide range of Christmas issues, indicated that 78% of parents would buy their little treasures the same presents, however bad their behaviour. Not surprising, perhaps, when – as any public policy economist will tell you – children’s happiness at Christmas has a positive externality for their parents. (Who wants to spend Christmas with Mr Grumpy?). However – as ever – we try to help our clients reach evidence-based conclusions.
78% - Percentage of parents would buy their little treasures the same presents, however bad their behaviour.
And the evidence from this survey is that our junior client base still faces the 22% risk of a sanctions regime. So how can you mitigate this? Here’s the good news: economics has some useful tricks up its Christmas stocking.
The biggest danger you face is benchmarking.
Let’s assume that your parents are in this tiresome performance-measuring 22% minority. How will they go about it? The biggest danger you face is benchmarking.
You may think it’s bad enough having a goody two-shoes for a brother or sister, but – to make things worse – your parents may use your sibling as a measuring-stick for your own behaviour. And, if your parents have a fixed budget constraint for Christmas presents (a fair bet in these troubled times), your sibling’s angelic behaviour may directly result in you losing out.
This creates what economists call a Prisoner’s Dilemma – a pernicious situation in which you and your sibling both have an incentive to behave well, even though you would collectively be better off if you both behaved badly. The diagram in Figure 1 illustrates the dilemma.
In this illustration, we assume that parents have 20 points’ worth of presents to award to their two children. The parents declare that they will give all the presents to the child who keeps the cleanest bedroom, or split the presents evenly between them if they are equally tidy.
Two equally mucky rooms, and each child gets a 10-point present. Two spotless rooms will also guarantee each child a share of the presents. However this will also cost them 5 points’ worth of effort, reducing the net gain for each to only 5 points – who wants to be putting things in boxes when they could be playing computer games or watching TV?
Source: Frontier Economics
So, as Figure 1 shows, any sensible pair of siblings would prefer an outcome where they can both stay untidy (the bottom-right box) to an outcome where they both have spotless bedrooms (top left). However, this comfortably messy outcome is also unstable: if Alex is bound to be scruffy, Stephanie has every incentive to start hoovering. That way she gets all the presents for just 5 points of effort. And if Alex spots this, he then needs to start clearing up to salvage his hopes of something under the tree. Both children will end up scrubbing their rooms clean, even though they are both worse off as a result.
...if Alex is bound to be scruffy, Stephanie has every incentive to start hoovering.
A win for your parents? Hang on: experimental game theory suggests a way out of your dilemma. Alex should make it clear to Stephanie that if she so much as picks up a sweet paper, he will retaliate with a similarly sycophantic act of cleanliness. This threat, if executed with discipline, should keep Stephanie in line, thereby allowing both to collude by behaving equally badly (all this puts a new spin on the phrase “one good turn deserves another”). The more siblings you have, however, the trickier it becomes to co-ordinate this strategy, given the powerful incentives to “cheat” your way to a present with a sneaky clear-up.
Insights from psychology add richness to textbook economics, like cranberry sauce on a good turkey roast. In recent years, big advances have been made in understanding how our supposedly rational choices are “nudged” by other influences. This research offers some handy hints to kids willing to show a bit of Christmas cunning. Key influences on parents’ behaviour to be aware of include:
Be wary of New Year resolutions to drop bad habits: chances are that December stress and mulled wine will wipe these commitments out of your parents’ memories.
Finally, don’t make things worse for yourself. Beware of making exaggerated claims for your behaviour under cross-examination in Santa’s Grotto. Many a company has got into trouble misleading the regulator. And even the soppiest parent may be provoked by hearing you give an unwisely positive response to Santa’s probing question as to whether you’ve been an awfully good boy all year. Claim shyness and don’t answer.
Take the same cautious approach to forward commitments. If forced to sing “Once in Royal David’s City” at the school carol concert, hum through the lines that would otherwise sign you up to the proposition that “Christian children all must be, Mild, obedient, good as he”. Be wary of New Year resolutions to drop bad habits: chances are that December stress and mulled wine will wipe these commitments out of your parents’ memories, but why take the risk of disappointing them? (One experienced seven-year-old reports that when pressed by his family to say what he was prepared to give up, he simply said he was giving up listening.)
Above all, encourage your parents not to expect too much – however unfashionable rational expectations theory has become. The more realistic your parents’ expectations, the less of a failure they’ll feel, the less they’ll bug you – and the happier a Christmas you’ll all enjoy. Which, of course, along with a great New Year, is what we at Frontier want to wish all our clients, senior and junior, past, present – and future.
¹Walmart Talking Holiday Toys Survey, 2012
At the 9th Ministerial Conference in Bali, the World Trade Organisation (WTO) agreed on new rules to simplify customs procedures and facilitate trade. It also agreed certain issues relating to trade in agriculture and matters of interest to the WTO’s poorest member countries.
The main focus has been the Agreement on Trade Facilitation, which represents the most significant extension in multilateral trade rules in 15 years. The implementation of these new rules, coupled with investments in improving customs administration, is expected to generate a significant boost to global trade. Research indicates that every dollar spent on improving the regulatory regime affecting trade in the WTO’s poorer countries can increase trade by nearly $700 in these countries.
The benefits of rules on trade facilitation reflect the fact that as traditional obstacles to trade – such as tariffs and other border measures – have decreased, red tape and administrative inefficiencies have become major impediments. This is especially important in a world in which globalised supply chains have become the main driver of trade; around 60% of global trade involves intermediate products, and 30% of world trade involves transactions between affiliates of the same multinational corporation.
Frontier (Australia) works with clients on a broad range of trade policy and related matters. This includes modelling trade policy measures, advising on trade negotiations, trade facilitation and customs reforms, litigation, and transport logistics.
For more information, please contact Marita O’Keeffe at m.okeeffe@frontier-economics.com.au or call on +61 (0)3 9620 4488.
